FORTUNE roundtable
COLVIN: If anyone had told you at the beginning of 2003
that by year-end the Dow would jump 25 percent, that investigators would
expose a business scandal arguably bigger than all the others, namely
the mutual fund scandal, and that the actor who played Mr. Freeze in Batman
and Robin would become governor of California, though it wasn’t an election
year -- you would’ve said they were nuts. You might also think that’s
enough to scare any sensible person away from making predictions -- but
not me, or two of my longtime FORTUNE magazine colleagues. Shawn
Tully is a senior writer at FORTUNE. Rik Kirkland is the managing
editor, joining us from New York.
Guys, I want to ask both of you before we get to the fearless forecast, Rik, you first, the most important under-reported story of 2003?
RIK KIRKLAND: Well, Geoff, I guess the most important
under-reported story would be, as the old Tennessee Ford song goes, another
year older and deeper in debt. I mean we have heard about the deficit
a little bit here and there during the year, but what happened in this
year of wonderful economic recovery is that every sector of American society,
the corporate, the consumer, and of course famously the federal government,
have all added to their debt loads. And normally we work down debt in
a recession and that helps us as we recover. Here we’ve added to our debt
load. And I think, you know, next year’s going to be a pretty good year
for the U.S. economy, but if we don’t start doing something about this,
if we don’t grow up before we grow old, we’re going to have a big problem.
COLVIN: Sixteen tons of debt and more, right?
KIRKLAND: You’ve got it.
COLVIN: Shawn, what do you say?
SHAWN TULLY: Geoff, for me the most under-reported story
is the whole fee problem with mutual funds. And one of the big problems
is not just the reported fees, it’s the hidden fees. And the one that
I really think should be focused on by investors in 2004 is what they
call soft dollars, which are these excessive commissions that mutual funds
pay. They come right out of your performance of your mutual fund investments.
And they’re essentially money, two or three cents a share is kicked back.
They’re paying six cents a share when market prices for commissions is
more like two cents.
COLVIN: Six cents a share to do the trades.
TULLY: To do the trades.
COLVIN: And some of that is kicked back to them in other forms.
TULLY: Right. It’s kicked back in the forms of free computers, free rent, etc, so it doesn’t come out of the overhead of the mutual fund company. It comes right out of your pocket.
COLVIN: And just to be clear, this is not in the reported fees that you read about.
TULLY: No, it’s not. It probably adds somewhere between a third to a half a point at the very minimum. The other big story of course is the market impact that plays into this New York Stock Exchange scandal. Companies, mutual fund companies have to reveal to Wall Street what they’re buying and selling. That moves markets. In effect you have to buy shares for more than you should if they could trade anonymously, which is why the specialist system is a bad system.
COLVIN: Okay. Looking ahead to 2004, I’m going to read
some phrases. I just want your response, okay? Here’s the first one: Ladies
and gentlemen, the President and Mr. Clinton. Rik?
KIRKLAND: (laughter) Well, Mr. Clinton will still be
with Mrs. Clinton, and the President will be Mr. Bush.
COLVIN: And who will he defeat in November?
KIRKLAND: He will defeat Mr. Dean.
COLVIN: Shawn, what do you think?
TULLY: Yeah, if you were a betting man, you’d have to bet big time on George W. Bush. But on the other hand, his father was a big favorite at around this time as well in the cycle, and he was defeated. But definitely odds right now, 80 percent Bush.
COLVIN: Okay, Shawn: Dow 12,000.
TULLY: Unlikely.
COLVIN: Dow 8000.
TULLY: More likely.
COLVIN: Really.
TULLY: Yes.
COLVIN: Rik, what do you think?
KIRKLAND: We’ll see Dow 12,000 sometime in the first half of the year, and we’ll end the year below, around Dow, I don’t know, Shawn took 8000, I’ll take 10,000.
COLVIN: All right. The Nasdaq ended 2003 at 2,003. It will end 2004 at… Shawn?
TULLY: Well, I’ll tell you where it should end 2004 based on any kind of science or mathematics, which would be 1600, 1500 or lower. But these “bubbles” last a long time, very unpredictable. The one in ’99 and 2000 took a long time to pop. We don’t have nearly as big a bubble, but we have very overpriced stocks. Geoff, the market cap for the Nasdaq 100 is $1.8 trillion. Those 100 companies earned $45 billion. The multiple is now 40. You look at anybody who ever bought in at a 40 multiple, which you never hear from these glad-handers and happy talkers…
COLVIN: The happy talkers, yes.
TULLY: … the crowd, and see what the future returns. They’re almost always negative or piddly going forward.
COLVIN: When you buy at those high multiples. Rik, are you going to touch the Nasdaq?
KIRKLAND: Oh, sure. You’re not taping this are you? (laughter) 2004, Geoff.
COLVIN: It’s going to end 2004. Yeah, okay. Make a point. All right, another phrase. Where you’re going, Dennis, they don’t even have shower curtains. Rik, what do you say?
KIRKLAND: I think Dennis is going to serve some time.
COLVIN: Do you?
KIRKLAND: Yeah.
COLVIN: And what about the two other most famous non-defendants,
actually Ken Lay and Jeff Skilling?
KIRKLAND: I think that’s less likely. I also think, you didn’t ask me, I think Martha will walk.
COLVIN: Interesting. Shawn, what do you think?
TULLY: Yes, I was interested to see William Safire thinks
Martha will walk. That seems to be the… and it was interesting she wasn’t
indicted for insider trading. She was indicted for obstruction of justice.
So I think she probably will walk. After reading the fantastic FORTUNE
book about Skilling and Lay…
COLVIN: Yes, The Smartest Guys in the Room, just
to plug it fully.
TULLY: Any defense they have is strictly technical and narrow. So what should happen to them is probably different from what will happen, which is probably that they’ll escape on the basis of technical, being able to escape technically, but in effect they really defrauded a lot of people.
KIRKLAND: Actually, Geoff, I think they may actually still get, they may get Skilling, but I think it won’t happen in ’04. It’s too complicated. It’s going to take too long.
COLVIN: It’s going to take longer than that. Okay, well, look, I want to ask each of you guys finally just for a prediction of your own. Whatever you’re confident of, whatever you think is going to be big and important in ’04. Shawn, you first.
TULLY: I think what’s going to happen in ’04 is that
given the revelations about mutual funds, that people are going to focus
on fees and trading costs and realize that in a period where P/Es are
really high and their expected returns are real low, in the single digits,
even the mid-single digits, they can’t afford to spend two or three points
in fees, market impact and soft dollars to buy a mutual fund. So I think
there’s going to be a real recalibration. The market is going to take
over, and hopefully we’re going to see some fee reductions, both pushed
by people like Spitzer, and also by the marketplace itself. That’s what
should happen. We’ll see if it does.
COLVIN: It’s your hope, if not necessarily. Okay, Rik, what do you say?
KIRKLAND: The dear old dollar is going to continue to weaken, and if you’re thinking of going to Europe, go ahead and go now.
COLVIN: The sooner the better.
KIRKLAND: Yeah.
COLVIN: Okay. My own prediction, by the way, is that
Eliot Spitzer will announce he’s running for governor of New York, Phil
Angelides, the treasurer of California, will announce he’s running for
governor of California, and we may see the real impact of these corporate
scandals being that the next governors of the two most popular states
may be guys who are building their public reputations on the scandals
and their fallout. That’s all we’ve got time for now. Shawn Tully, Rik
Kirkland, thanks so much.
Market Outlook
KAREN GIBBS: Well, I’ll take a jab at a new year prediction
-- election year stimulus will continue to act as a tailwind for the economy
and the stock market. But after three bruising years, investors will open
their year-end statements without dread. Thanks to stellar gains in the
second and fourth quarter, 2003 defied the naysayers and racked up impressive
gains. The Russell 2000, a proxy for small cap stocks, rose 45 percent for its
best ever yearly performance.
The Nasdaq rallied 50 percent, disappointing the pallbearers that were ready
to bury the sector.
The Dow was anything but black and blue, staging a 25 percent rally thanks to
these darlings and in spite of these dogs. And 92 percent of the stocks in the
S&P 500 were higher on the year, pushing that index to a 26 percent gain. The
gold index didn’t lose any of its luster, jumping 42 percent in 2003.
And the 10-year Treasury yield, a benchmark for many consumer loans,
rose by less than half a percent.
Can all this good fortune carry over into 2004? Jim Paulsen of Wells Capital Management says yes, the economic expansion is sustainable. Bernie Schaeffer of Schaeffer Investment Research is cautious and hedging his bets.
Well, Bernie, what was the most impressive thing you noticed about 2003?
BERNIE SCHAEFFER: Well, Karen, I think, you mentioned
all those great growth numbers for the stock market in 2003, and of course
we had accelerating economic growth, and we also had a pretty weak dollar,
particularly in the second half of the year. This is not a really good
recipe for the bond market, yet the bond market managed to hold together
extremely well in 2003. Interest rates stayed very modest, and of course
this only added to the positive environment for stocks. So it was pretty
much a best of all worlds, as it turned out.
GIBBS: Jim, how about you? What stood out in your mind
for 2003?
JIM PAULSEN: Well, I think certainly, Karen, just the
fact that the economy finally came to life. We tried this for three years
running, the end of 2000, 2001, 2002, and it never seemed to work. And
the fact that it finally leapt to life, I think not only that it came
back, but so strongly. We had an 8.2 percent gain in real GDP in the third quarter.
We’re probably looking at 4 to 5 percent in the fourth. And I think that
that is the biggest surprise of the year. I agree with Bernie’s comments
as well. The other thing that I would add in that was less focused on
is that by year’s end here in 2003, we came to find out that this was
more of a synchronized, global boom than we thought when we started the
year. I think everyone pretty much felt that it would be the U.S. that
would have to pull the world out of recession, and as we start 2004, we
see that Japan’s part of this, that China’s part of it, and even parts
of Europe are coming out with the United States.
GIBBS: So globalization, Jim, has really taken hold. But that 8.2 percent growth rate that you mentioned, it looks like that could ignite inflation. What do you think about inflation?
PAULSEN: Well, I think that’s the big debate for this year, Karen, is not so much now is growth going to be good – I think most people think it will be – the issue will be is, will good growth bring about inflation? I tend to think we’re going to have that problem a little bit this year as it rolls along. I think inflation’s in the process of bottoming, as evidenced by what’s happened with commodity prices during 2003. And I think as the year progresses, we’re going to see some of those pressures feed into both producer and consumer prices.
GIBBS: Bernie, looking at the CRB index, which is a barometer of inflation, and that falling dollar that you mentioned, isn’t that a one-two punch here for the bond market?
SCHAEFFER: Well, it’s a one-two punch. It hasn’t manifested itself yet. In addition, Karen, as far as inflationary concerns, we’ve had massive, simply massive fiscal and monetary stimulus, and we also have negative real interest rates, meaning that short-term interest rates are below the current relatively modest rate of inflation. But the fact that rates are below the inflation rate has been a recipe in the past for an acceleration in inflation and for commodity prices and gold prices to rally sharply.
GIBBS: Based on… I’m sorry, Jim, go on.
PAULSEN: I was just going to throw in too that I think, Karen, that a big piece of the low inflation we’ve experienced in the last few years has been because our trade deficit has been expanding and it’s been so competitive from overseas markets. And I think in 2004 we’re going to have the first year here in a long time that comes on the heels of a weak dollar and muting sort of international price competition. And I think if we eliminate sort of the tradable commodity deflation that we’ve had in the last couple of years, we’re going to see the domestic inflation trends truly are greater than we expect.
GIBBS: So, Jim, where do we put our money for 2004?
PAULSEN: Well, I still like the stock market. I think stocks versus bonds in 2004 is going to have another year where stocks soundly outperform bonds. And the question is going to be, will that be a year in which stocks really go up again like they did in 2003 and bond yields don’t do much? Or more likely, in my view, I think we’re going to see a year where stocks go up a little bit, let’s say high single digits, low double digits, but the bigger move might be that bond yields really go up or bond prices really fall. In either case, I think that investors still want to be overweighted in stocks relative to bonds.
GIBBS: When you talk about stocks in general, are you talking about the market indices? Would you be saying an index fund? Or are you thinking it’s a stock picker’s market and are looking at particular issues that would be attractive?
PAULSEN: In my comments here, I think I’m talking more about the overall stock market as opposed to individual issues. I think that index funds will have another positive return year. Certainly if you can pick the better stocks, you always do better.
GIBBS: Bernie, how about you?
SCHAEFFER: Well, I would differ with Jim. I’m with him
particularly in the earlier part of the year. I think we’ve got pretty
much baked in the cake here a nice market rally in the first, certainly
in the first three months of the year, perhaps going through mid-year.
I mean we’ve got the potential for huge money moving into the market.
I think the flows into equity mutual funds will only accelerate, particularly
in the first quarter. I think we’ve got a massive amount of short covering
that is still going to take place, which is going to help power the market
higher, and it’s going to be kind of a virtuous money flow kind of a situation.
But I do think we’re moving into a transition year for the market, and
I see a lot of vulnerability as we move into mid-year. We’re going to
probably get pretty aggressive in terms of market valuation, and we’re
going to have a situation where the money flows are going to start to
become less positive. And at that point, we become vulnerable to any kind
of disappointments that can occur, and there’s a lot of disappointments
that can occur, everything from accelerated interest rates, higher inflation,
a plunge in the dollar, earnings not growing as well as anticipated. And
jobs growth, which is still a pretty iffy proposition, is something that
could bother the market as well.
GIBBS: So, Bernie, how do I allocate my assets?
SCHAEFFER: I think you need to be extremely nimble,
Karen. Right here I’ve got some aggressive allocations in my model portfolio.
I’m pretty heavy in tech. I think tech is going to continue to lead. I
have about 25 percent in tech. I’m about 20 percent in the automobile
sector. I think stocks like Ford,
for example, remain a classic contrarian buy, a good play on a weak dollar.
Their business is turning around, a tremendous amount of negativism out
there on the company. There’s a book out right now called The End of
Detroit, for example. These often represent classic buying opportunities
in downtrodden sectors. I would have 20 percent exposure to gold stocks,
sort of an anti-best-case-scenario type investment, and I would be heavy
in cash. I think if investors are not going to be invested in gold, if
that’s not for you, I think you should be up to 50 percent in cash. I
currently carry about 20 percent cash.
GIBBS: Jim, what do you think about that model portfolio that Bernie just outlined?
PAULSEN: Well, I agree with parts of it. Other parts
I disagree, I guess. I would, I think the biggest decision you can make
is to be overweighted stocks and underweighted bonds. I think bonds potentially
represent the biggest risk this year in the markets. And then within the
stock portfolio, I also, like Bernie, like technology and think probably
will stay overweighted most of this year in technology stocks. But in
addition to that, I think the biggest change that might take place this
year is going to be within the sector leadership.
I think because we start this year small-cap stocks and more cyclical
or economically-sensitive stocks are going to lead the way, because they
have been throughout much of last year, but as we move to the spring and
summer, I think leadership is going to shift back towards larger-cap,
larger-capitalization stocks, as well as away from the cyclical sectors
like basic materials or industrials or consumer cyclicals, and move more
to the defensive sectors of the stock market. So in the last half of this
year, I think I’d like to be more exposed to consumer staples, healthcare,
and maybe the integrated oils, than I would to the consumer cyclical stocks
or even the basic materials.
GIBBS: How about the international market, Jim? Does that have any position in your portfolio?
PAULSEN: It sure does. We’ve been overweight international stocks really since about the middle of 2002, which has worked out well in conjunction with the dollar weakening. And I think that investors want to maintain an overweight there, perhaps for the next couple years. And that has largely to do with the idea that the dollar is likely to continue to weaken in the next couple of years. And if it does, even if their markets do about the same as our markets, because of currency weakness you’ll get higher returns from having a little more exposure overseas.
SCHAEFFER: I’m going to differ with Jim on the big-caps.
This has been a theme that actually has been predicted over the past few
years, year-end last year, the safety play, the big-caps, the Wal-Marts,
the Pfizers, the Johnson & Johnsons, the GEs, even the Microsofts in the
tech area, were highly recommended at the end of ’92. They were the duds
of 1993, and I think these stocks are going to remain duds.
There was such a huge flow out of speculation, out of tech, as the bubble
popped and as the technology sector plunged. I don’t think that flow back
from the safe names, the big-caps, to technology and the smaller caps
is finished. I think we’re going to still see the outperformance in tech
and small-cap. And I think the worst place, the worst allocation for an
investor here would be 100 percent in an S&P index fund with no adjustments throughout
the year. I think that’s dangerous, because I think a lot of the risks
out there are going to fall on the big caps as opposed to the techs and
the smaller caps.
GIBBS: Well, the techs and the small caps, Bernie, have run a long way so far. I mean 2003 was very impressive. Can that continue in 2004?
SCHAEFFER: It’s interesting, Karen. They have run a
long way. If you look at a performance chart of the Nasdaq composite relative
to the Dow -- of course we had a big spike upwards in performance by the
Nasdaq as we moved into the peak of the bubble in 2000, and then of course
a big plunge in Nasdaq into the 2002 bottom -- Nasdaq would still have
to rally close to 50 percent relative to the Dow to get back to the mid point
of its 2000 peak to its 2002 lows. I’m not saying it is going to rally
50 percent relative to the Dow, but I guess my comment is it’s all relative.
Yes, Nasdaq has rallied, but yes, there were some huge plunges, particularly
on some of the individual Nasdaq names, Juniper Networks from $240 down
to $3. Yeah, it’s back to $19. The question is: Is $19 a peak or can we go
further in some of those mid-cap techs?
GIBBS: Jim, let me come back to a comment that you made, particularly in terms of the dollar and inflation. Now there’s an elephant in the room that the financial industry seems to be ignoring, and that’s the deficit. How does that play into 2004?
PAULSEN: Are you talking about the trade deficit?
GIBBS: The budget deficit.
PAULSEN: The budget deficit I think is not going to
be a huge issue in 2004. It might well be a bigger issue in 2005 or 2006.
And indeed I think we’re going to see improvement in the deficit this
year. At the state and local level, they’re already, as an aggregate of
all the states and local budgets, they’re already almost back to balance
on a trailing 12-month basis.
And I think that the federal deficit, as large as it is, will still be
in deficit by the end of this year, but I think is going to improve quite
a bit. And the simple reason for that, Karen, is that as the economy picks
up, tax receipts are going to explode for the U.S. Governments. Profits
are now back, so profit taxes are back. Incomes are going up with jobs
coming back, and so income taxes go up, as well as welfare expenditures
on unemployment claims and so forth go down. So I think we’re going to
be pleased by the end of the year with the improvement, but we’re still
going to have a lasting deficit.
GIBBS: Bernie, corporations have started to enjoy some pricing power. And back to your technology area, would you be buying specific companies, or are you looking at the index?
SCHAEFFER: I’m looking more at the index, Karen, in
terms of a simple vehicle for investors to play in. Now with the exchange-traded
funds, you’ve got the Nasdaq 100
index, the QQQs that are so liquid and so representative of the performance
throughout the tech spectrum. I wouldn’t be too cute here in terms of
picking individual names. And I’m looking at the QQQ in particular. We
do a lot of work in terms of sentiment analysis. And there is a lot of
work to be done on the QQQ in terms of covering big short positions, and
also we have a record level right here and now, we have a record level
of open interest in puts, which means that players in the options market
are as heavy into puts on the Nasdaq 100 as they have ever been, actually
are more into puts than they’ve ever been. This is ironic and kind of
shocking given the strength in the market and the strength in techs in
particular. And I think this short covering could lead to a melt up, so
to speak, actually in technology in the first quarter.
GIBBS: What out there could change your outlook? What would change that melt up to a meltdown?
SCHAEFFER: A melt up to a meltdown in tech? Well, we could, we could be, we’re seeing, even as we move into the first of year here, we’re seeing some extreme weakness in the dollar. And as I said in the first part of the program, the bond market has held up remarkably well in the face of a declining dollar. I think there are still expectations that the dollar decline is going to be manageable. If that dollar decline gets out of the realm of manageable and goes into a freefall, I don’t know of any sector in the stock market that’s going to be able to hold up well.
GIBBS: How about you, Jim? Do you see any loose cannons on deck?
PAULSEN: Well, I think the real risk, and Bernie sort of alludes to that with the weak dollar, in a more general sense is just how quick and how aggressive could inflation fear hit the marketplace. And not only scare investors, but also scare policy officials essentially into forcing them to retighten again. And I think that if, for example, most people, a lot of people still think the Fed won’t tighten at all this year, and if instead they end up tightening in the first quarter, I think that could abort what would otherwise be maybe a pretty good run in the stock market.
GIBBS: Jim Paulsen, Bernie Schaeffer, thank you and Happy New Year.
Stanley Bing interview
COLVIN: Okay, we ran budget deficits in 2003, but we had record surpluses of scandals, indictments, fines, and writeoffs. In fact it was a year of the dumbest, most boneheaded business moves we've seen in ages. And who better to talk with about this than Stanley Bing, FORTUNE magazine columnist and author of The Big Bing: Black Holes of Time Management, Gaseous Executive Bodies, Exploding Careers, and Other Theories on the Origins of the Business Universe. Under another name Mr. Bing is actually a high-level executive at a major Fortune 500 company, and while his true identity is, as he says, one of the worst kept secrets in business, we will not reveal it here. He joins us from New York.
Hi, Mr. Bing. How are you?
BING: I'm doing good.
COLVIN: It's wonderful to see you. Look, I've got my own list of the most boneheaded business moves of 2003. But you are really a connoisseur of business boneheadedness and I wonder what struck you in the past year?
BING: Well, I made a lifetime studying it and been part of quite a few boneheaded moves myself, but I guess we'd have to give -- the prime just opened up with the award of the year to Dennis Kozlowski, wouldn't we?
COLVIN: I think he's unavoidable.
BING: I mean he's beautiful in his purity and the size and clarity of his alleged stupidities. And I'll never drink vodka the same way again, let's put it that way.
COLVIN: I've referred to him in print as an artist, and he really is. That party, the birthday party in Sardinia that you're referring to, it's hard to believe there's anyone who doesn't yet know about how the Stolichnaya vodka was dispensed through an ice sculpture of Michelangelo's David. We won't describe it any more precisely than that.
BING: Let's just say that it was something that made Michelangelo roll over in his grave. Either that or smile in his grave, either one.
COLVIN: We need to know more about Michelangelo.
BING: We do. The size of the indulgence that he considered to be sort of due him as the head of the company is what's interesting. And I think a lot of the time these bonehead moves come out of egotism, and that's why we salute them.
COLVIN: I think that's exactly right. Actually the dumbest little detail of all that I thought was that of the $2.1 million he spent on that party, part of the budget was to pay the guy who videotaped it.
BING: I know. Well, it reminds me of the great boneheaded move of our century, one of them, you know, when Nixon put a tape in the oval office and then sort of forgot that he was taping it. I also liked a lot the fact that Mr. Kozlowski charged only half of the party to the shareholders.
COLVIN: Well, that's right. You see, he was displaying some kind of responsibility.
BING: Right. He sat down and he said, look, I've got to be fair about this thing, I'm only going to charge about $1 million to the shareholders, the rest of it I'm going to pick up. The other thing I love about it is I heard from somebody who was at the party that it was a pretty lousy party. Because basically all the people did was just get hammered and fall face first into the ice pool, you know. You can do that for really cheap, believe me.
COLVIN: You don't have to go to the Mediterranean.
BING: You don't have to go to Sardinia to get yourself loaded. So that was good as a display of sort of executive largess that I think was second to none. But I think we have to give Martha Stewart some tip of the hat, don't we?
COLVIN: I think that's the other really big unavoidable one of the year.
BING: I think you do not so much for anything that she might or might not have done, but sort of how it was handled publicly was brilliantly non-effective.
COLVIN: It was for sure. The quote of the year may be what?
BING: Well, "I will be exonerated from all of this foolishness and now I'd like to focus on my salad."
COLVIN: Exactly. That's what I was thinking and I just don't think there is any way around it.
BING: Well, how many times in our lives do we like to say to somebody, "and now I'd like to focus on my salad," you know. I do it like a couple of times a week.
COLVIN: She said it for all of us, right? Now here is a question I've been wanting to ask you. It concerns Richard Scrushy, the former CEO of HealthSouth.
BING: Yes, former is the operative word.
COLVIN: It is the operative word. Which was dumber, misrepresenting company earnings by $2.7 billion as alleged by prosecutors, or showing shareholders a video of himself singing "Honk if You Love Honky-tonk."
BING: I guess I'd have to say the video and the defalcation, or whatever it was, combined make the boneheaded move. Because if you only do one and not the other, then you may get off. Apparently it was common practice to overstate your earnings. So a lot of people got away with that, and a lot of people get away with entertaining the shareholders. But putting both things together, he didn't really come out very well.
COLVIN: How about the whole New York Stock Exchange Richard Grasso...
BING: Yeah, what I love about that is that I know a lot of executives who feel he got a bum deal because that's the deal, I mean in terms of being ousted, in terms of being made fun of, you know there's a club of high senior management that believes that if you can get paid that amount of money, then you deserve it. And so a lot of people were saying well, it was his deal, it's what he got. And by the way, whatever, I forget now how many tens of millions of dollars, how much was it?
COLVIN: $139 million is the figure that sticks in the memory.
BING: Yeah, it's the last $5 million I think that people kind of ...
COLVIN: Pushed it over the edge?
BING: Yeah. They kind of dispute that, but there are a lot of senior executives who feel like, you know, hey, that was for several years of work.
COLVIN: Well, that's right. Maybe it was the board that was boneheaded.
BING: Well, the board kind of went along. Look, boards are very clubby; they have been in the past. Believe me it's going to make a lot of problems for corporations if we suddenly start getting aggressive boards of directors.
COLVIN: You, in real life, work in a stunning corner office, beautiful views. You spend your days with the most powerful, most successful people in America. It was exactly these kinds of people who committed all these things that we've talking about. So what gets into them?
BING: Well, you know, actually I don't know any such people. But the people I've heard about, the thing that happens, and it happened in the case of a certain executive at General Electric as well, is that they begin to see themselves as the company. And they've given their lives to the company and they've given all of their time to the company, and some of them have given all of their hair to the company, and at some point they don't make a differentiation between, you know, it's my wife's party or it's my golf dues or it's my car. It's just part of my life, and my life is the company, so they conveniently blur the lines in their minds. And it's almost like what Louis XV said, "L'état c'est moi, I am the state." If you are the state, so who cares what pocket the lunch at 21 is coming out of? It's all the same stuff. It's all you, it's all the company. So it's a combination of enormous central egotism mixed with a sense of entitlement at having produced billions of dollars in revenue and performance for these companies.
COLVIN: Right. Well, it was a memorable year.
BING: I would like very much to attain that status, and I think we all would. The tragic thing about this year was that a lot of people got caught and were forced to do perp walks. I think the perp walk has come into its own in this century, and we just experienced, by the way, the ultimate perp walk.
COLVIN: Which was?
BING: Saddam Hussein being arrested.
COLVIN: Well, that's actually a good point. That was the ultimate perp walk.
BING: It was. I mean can you imagine if those guys who ran Adelphi, if they'd been checking their gums and stuff? I mean a lot of business executives can take walking down the aisle with cuff links on. You know, that's one thing, but having your hair checked for lice and your teeth checked and stuff like that, that might dissuade a lot of white-collar criminals in the future.
COLVIN: Wisdom for all of us, of exactly the type to be found in The Big Bing by Stanley Bing. Thank you for joining us.
BING: A pleasure, Geoff.
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